What I Learned This Week

As the Fed continues pushing on a string, the Treasury is crowding out private-sector borrowing. Both will have negative implications for the U.S. economy.

The confluence of the poor U.S. and global PMI readings and the recent dollar-funding stresses in the repo market are not a coincidence. The U.S. manufacturing PMI registered its lowest level since 2009, while the PMI for services was the third lowest since 2009. This happened after excess reserves in the U.S. banking system fell from $2.7 trillion at their peak five years ago to $1.26 trillion, and the ratio of excess reserves to total commercial bank assets has fallen to 2009 levels (see chart below). While $1.26 trillion of excess reserves may sound like an abundant figure, in reality, the five major banks account for over 75% of that total, according to Jim Bianco of Bianco Research. Thi…

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